Journal of Computational Finance

Pricing American options: a comparison of Monte Carlo simulation approaches

Michael C. Fu, Scott B. Laprise, Dilip B. Madan, Yi Su, and Rongwen Wu


A number of Monte Carlo simulation-based approaches have been proposed within the past decade to address the problem of pricing American-style derivatives. The purpose of this paper is to test some of these algorithms empirically on a common set of problems in order to be able to assess the strenghts and weaknesses of each approach as a function of the problem characteristics. In addition, the authors introduce another simulation-based approach that parametrizes the early exercise curve and casts the valuation problem as an optimization problem of maximizing the expected payoff (under the martingale measure) with respect to the associated parameters, the optimization problem being solved using a simultaneous perturbation stochastic approximation (SPSA) algorithm.

Sorry, our subscription options are not loading right now

Please try again later. Get in touch with our customer services team if this issue persists.

New to View our subscription options

You need to sign in to use this feature. If you don’t have a account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here